Vertical Agreements the Regulation of Distribution Practices in 37 Jurisdictions Worldwide 2012 Contributing Editor: Stephen Kinsella OBE

GCRGLOBAL COMPETITION REVIEW Vertical Agreements The regulation of distribution practices in 37 jurisdictions worldwide 2012 Contributing editor: Stephen Kinsella OBE

Published by Getting the Deal Through in association with: Accura Advokatpartnerselskab Allende & Brea Altius Asters Bán, S Szabó & Partners Blake, Cassels & Graydon LLP Cortázar Urdaneta & Cía – Abogados Çukur & Yılmaz Law Firm De Berti Jacchia Franchini Forlani Dinova Rusev & Partners Law Office Franco Caiado Guerreiro & Associados Glade Michel Wirtz Golfinopoulos Law Office Homburger Jáuregui y Navarrete SC J Sagar Associates King & Wood Mallesons Kneppelhout & Korthals Korman & Oren Law Firm Glimstedt Lee & Ko Matheson Ormsby Prentice Momo-o, Matsuo & Namba Motieka & Audzevicius Office for the Protection of Competition Peli Filip SCA Pellegrini & Urrutia Salans Europe LLP, organizacˇná zložka Sidley Austin LLP Uría Menéndez Vella Pugliese Buosi Guidoni – Advogados Vivien & Associés Wolf Theiss contents

Vertical Argentina Julián Peña Allende & Brea 3 Agreements 2012 Australia Wayne Leach and Sharon Henrick King & Wood Mallesons 10 Contributing editor Austria Guenter Bauer and Robert Wagner Wolf Theiss 17 Stephen Kinsella OBE Sidley Austin LLP Belgium Carmen Verdonck and Jenna Auwerx Altius 25 Business development managers Brazil Priscila Brolio Gonçalves and Ana Carolina Cabana Zoricic Alan Lee George Ingledew Vella Pugliese Buosi Guidoni – Advogados 34 Robyn Hetherington Dan White Bulgaria Milen Rusev Dinova Rusev & Partners Law Office 42 Marketing managers Canada Jason Gudofsky, Micah Wood and Joshua Krane Blake, Cassels & Graydon LLP 49 Ellie Notley Alice Hazard Chile Julio Pellegrini and Pedro Rencoret Pellegrini & Urrutia 57 Marketing assistants China Chen Yang and Lei Li Sidley Austin LLP 64 William Bentley Zosia Demkowicz Colombia Javier Cortázar-Mora Cortázar Urdaneta & Cía – Abogados 72 Admin assistant Megan Friedman Czech Republic Michael Mikulík and Michal Petr Office for the Protection of Competition 79

Marketing manager (subscriptions) Denmark Christina Heiberg-Grevy and Malene Gry-Jensen Accura Advokatpartnerselskab 87 Rachel Nurse Subscriptions@ Estonia Triin Tuulik and Marko Tiiman Law Firm Glimstedt 94 GettingTheDealThrough.com European Union Stephen Kinsella OBE, Stephen Spinks, Patrick Harrison, Rosanna Connolly Sidley Austin LLP 102 Assistant editor Adam Myers France Muriel Perrier Vivien & Associés 114 Editorial assistant Lydia Gerges Germany Markus M Wirtz and Silke Möller Glade Michel Wirtz 121 Senior production editor Greece Christos Golfinopoulos Golfinopoulos Law Office 130 Jonathan Cowie

Chief subeditor Hungary Chrysta Bán Bán, S Szabó & Partners 138 Jonathan Allen India Amit Kapur, Farhad Sorabjee and Amitabh Kumar J Sagar Associates 145 Subeditor Joanne Morley Ireland Helen Kelly and Bonnie Costelloe Matheson Ormsby Prentice 153

Editor-in-chief Israel William B Korman and Nachum Oren Korman & Oren 161 Callum Campbell Italy Fabio Ferraro and Andrew G Paton De Berti Jacchia Franchini Forlani 171 Publisher Richard Davey Japan Nobuaki Mukai Momo-o, Matsuo & Namba 182

Vertical Agreements 2012 Korea Sung Man Kim Lee & Ko 190 Published by Law Business Research Ltd Lithuania Emil Radzihovsky, Giedrius Kolesnikovas and Ramu¯nas Audzevicˇius 87 Lancaster Road Motieka & Audzevicius 197 London, W11 1QQ, UK Tel: +44 20 7908 1188 Mexico David Hurtado Badiola and Manuel Iglesias Aguilera Jáuregui y Navarrete SC 207 Fax: +44 20 7229 6910 © Law Business Research Ltd 2012 Netherlands Esther Glerum-Van Aalst, Marleen de Putter and Andre Reznitchenko No photocopying: copyright licences do not apply. Kneppelhout & Korthals 216 ISSN 1753-9250 Portugal Joana Gomes dos Santos Franco Caiado Guerreiro & Associados 222 The information provided in this Romania Carmen Peli and Manuela Lupeanu Peli Filip SCA 229 publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal Serbia Guenter Bauer, Beba Mileti´c and Maja Stankovi´c Wolf Theiss 238 action based on the information provided. This information is not intended to Slovakia Katarína Pecnová Salans Europe LLP, organizacˇná zložka 246 create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for Spain Edurne Navarro Varona and Luis Moscoso del Prado Uría Menéndez 253 any acts or omissions contained herein. Although the information provided is Switzerland Franz Hoffet, Marcel Dietrich, Gerald Brei and Andrea Eugster Homburger 261 accurate as of March 2012, be advised that this is a developing area. Turkey Özlem Kurt Çukur & Yılmaz Law Firm 269

Printed and distributed by Ukraine Igor Svechkar and Tetiana Vovk Asters 276 Encompass Print Solutions Tel: 0844 2480 112 United Kingdom Stephen Kinsella OBE, David Went, Patrick Harrison, Rosanna Connolly Sidley Austin LLP 284 Law United States Joel Mitnick Sidley Austin LLP 296 Business Research Homburger Switzerland

Switzerland

Franz Hoffet, Marcel Dietrich, Gerald Brei and Andrea Eugster Homburger

Antitrust law Legal objective

1 What are the legal sources that set out the antitrust law applicable to 3 Is the only objective pursued by the law on vertical restraints vertical restraints? economic, or does it also seek to promote or protect other interests? The relevant legislation in Switzerland is the Federal Act on Cartels The main objective pursued by the law on vertical restraints is the and Other Restraints of Competition of 6 October 1995 (Cartel Act, protection of competition. However, there also is a Notice of 19 CartA). In addition, the Swiss Competition Commission (ComCo) December 2005 regarding agreements with limited market effects issued a new notice regarding the competition law treatment of ver- meant to provide a safe harbour for small and medium-sized enter- tical agreements of 28 June 2010, which entered into force on 1 prises (SME Notice). The Verticals Notice takes precedence over the August 2010 (Verticals Notice, VN), replacing a previous notice of 2 SME Notice (VN, article 9(2)). July 2007. During a transitional period of one year, the new Verticals Notice shall not apply to agreements that came into effect prior to 1 Responsible authorities August 2010 and conform with the criteria of the previous, but not of the new, Verticals Notice. Legal sources in the area of antitrust law 4 Which authority is responsible for enforcing prohibitions on anti- are available on the ComCo’s website (www.weko.admin.ch) in the competitive vertical restraints? Where there are multiple responsible official languages German, French and Italian; some of them are also authorities, how are cases allocated? Do governments or ministers available in an English translation without legal force. have a role? In Switzerland, only federal administrative bodies have the power to Types of vertical restraint implement the CartA, namely, the ComCo and its Secretariat. The main administrative body enforcing the CartA is the ComCo. It is 2 List and describe the types of vertical restraints that are subject independent of the federal government (CartA, article 19(1)). The to antitrust law. Is the concept of vertical restraint defined in the ComCo is the sole administrative body with power to issue decisions antitrust law? prohibiting anti-competitive vertical restraints and to impose fines CartA, article 5, distinguishes three types of unlawful agreements in (CartA, article 53(1)). Decisions of the ComCo can be appealed to terms of the intensity of the restraint of competition: the Federal Administrative Court and to the Swiss Federal Court • agreements that do not significantly affect competition are consecutively. lawful; The Secretariat of the ComCo conducts investigations and pre- • agreements that significantly affect competition are lawful if they liminary investigations and prepares the ComCo’s decisions (CartA, can be justified on grounds of economic efficiency and unlawful article 23(1)). The Secretariat has the power to open investigations if they cannot be so justified; and with the consent of a member of the ComCo’s presiding body (CartA, • agreements that eliminate effective competition are unlawful. article 27(1)). In addition, every civil court can decide about the legality of CartA, article 5(4) defines two types of vertical agreements presumed anti-competitive vertical restraints if parties raise this issue in a civil to lead to the elimination of effective competition. Accordingly, litigation. agreements between undertakings on different market levels regarding minimum or fixed prices as well as clauses in distribution agree- Jurisdiction ments regarding the allocation of territories, provided distributors from other territories are prohibited from sales into these territories, 5 What is the test for determining whether a vertical restraint will are presumed to eliminate effective competition. The rules in CartA, be subject to antitrust law in your jurisdiction? Has the law in your article 5(4) are widely held to declare unlawful prohibitions of pas- jurisdiction regarding vertical restraints been applied extraterritorially? sive sales into exclusive territories (ie, absolute territorial protection). Has it been applied in a pure internet context and if so what factors The concept of vertical restraints itself is defined in VN, article 1. were deemed relevant when considering jurisdiction? Vertical agreements include binding or non-binding agreements and concerted practices between two or more enterprises at different lev- The Swiss antitrust law applies to vertical restraints whose effects are els of the market, which concern the commercial terms on which the felt in Switzerland, even if they originate in another country (CartA, relevant enterprises may purchase, sell or distribute goods or services. article 2(2)). There are no precedents yet regarding vertical restraints where the law would have been applied extraterritorially or in a pure internet context.

www.gettingthedealthrough.com 261 Switzerland Homburger

Agreements concluded by public entities Parent and related-company agreements

6 To what extent does antitrust law apply to vertical restraints in 11 In what circumstances do the vertical restraints rules apply to agreements concluded by public entities? agreements between a parent company and a related company (or between related companies of the same parent company)? Swiss antitrust law equally applies to vertical restraints in agreements concluded by public or state-owned entities (CartA, article 2(1)). Antitrust law applies to agreements between a parent and a related However, to the extent that particular provisions establish an official company as long as the related company does not belong to the same market or price system or that provisions entrust certain enterprises group. If a parent company effectively controls its affiliated compa- with the performance of public-interest tasks, by granting them spe- nies, for example, by the majority of capital or of voting shares, the cial rights, such provisions take precedence over the provisions of the whole group as such is regarded as an independent economic entity. CartA (CartA, article 3(1)). The CartA does not apply to group-internal relationships (group privilege).

Sector-specific rules Agent–principal agreements 7 Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? 12 In what circumstances does antitrust law on vertical restraints apply Please identify the rules and the sectors they cover. to agent–principal agreements in which an undertaking agrees to perform certain services on a supplier’s behalf for a sales-based In the motor vehicle sector, there is a special Notice on the Competi- commission payment? tion Law Treatment of Vertical Agreements in the Motor Vehicle Trade of 21 October 2002, as well as explanatory comments of the In Swiss antitrust law, there are no special provisions regarding ComCo thereto, which were amended in the summer of 2010. This agency agreements. Although there are no judicial precedents, it is notice takes precedence over the Verticals Notice (VN, article 9(1)). likely that the Swiss authorities would apply similar principles as in EU competition law.

General exceptions 13 Where antitrust rules do not apply (or apply differently) to agent– 8 Are there any general exceptions from antitrust law for certain types of principal relationships, is there guidance (or are there recent authority agreement containing vertical restraints? If so, please describe. decisions) on what constitutes an agent–principal relationship for these purposes? There are no general exceptions from antitrust law for certain types of vertical restraints as such (regarding the general applicability of As mentioned (see question 12), there are no special provisions antitrust law in the area of intellectual property rights, see question or judicial precedents regarding agency agreements in Swiss anti- 14). However, the ComCo regards vertical agreements other than trust law. It is likely that the Swiss authorities would apply similar those explicitly listed in VN, sections 10(1) and 12 usually as non- principles as in EU competition law as to what constitutes an agent– significant restrictions of competition, provided the market share of principal relationship for these purposes. all the enterprises involved does not exceed a threshold of 15 per cent on any of the relevant markets (VN, section 13(1)). As mentioned Intellectual property rights (see question 3), the Verticals Notice takes precedence over the SME Notice, which generally applies to agreements with limited market 14 Is antitrust law applied differently when the agreement containing the effects (VN, article 9(2)). vertical restraint also contains provisions granting intellectual property rights (IPRs)? Agreements Swiss antitrust law does not apply to effects on competition that result exclusively from laws governing intellectual property (CartA, 9 Is there a definition of ‘agreement’ – or its equivalent – in the antitrust article 3(2) first sentence). However, this exception does not apply law of your jurisdiction? to import restrictions based on IPRs (CartA, article 3(2) second sen- The term ‘agreement’ is defined by CartA, article 4(1). It comprises tence). The exact scope of this provision is unclear, and there are binding or non-binding agreements and concerted practices between no precedents on its application yet. In a landmark case prior to enterprises of the same or different levels of the market, the purpose the enactment of CartA, article 3(2) second sentence, the Federal or effect of which is to restrain competition. Supreme Court had held in 1999 that antitrust law – in particular the prohibition of abuse of a dominant position – may apply to a ban on parallel imports despite the principle of national exhaustion 10 In order to engage the antitrust law in relation to vertical restraints, under patent law (as it was in force then). VN, section 8(4) explicitly is it necessary for there to be a formal written agreement or can the states that the notice does not apply to vertical agreements containing relevant rules be engaged by an informal or unwritten understanding? provisions which relate to the assignment or use of IPRs, provided Agreements affecting competition are defined as binding or non- that those provisions constitute the primary object of such agree- binding agreements and concerted practices between undertakings ments and provided that they are not directly related to the use, sale which have as their object or effect a restraint of competition (CartA, or resale of goods or services by the buyer or its customers. article 4(1)). A formal written agreement is not required, an informal or unwritten tacit understanding is sufficient to engage the relevant Analytical framework for assessment rules. However, it is necessary that parties knowingly and wilfully cooperate, that is a ‘meeting of minds’ must be established. In return, 15 Explain the analytical framework that applies when assessing vertical mere parallel conduct is not sufficient. restraints under antitrust law. In Switzerland, two types of vertical restraints are presumed to eliminate effective competition and may be punished with first time

262 Getting the Deal Through – Vertical Agreements 2012 Homburger Switzerland infringement fines: agreements on fixed or minimum resale prices as three specific non-reimbursable pharmaceutical products to consti- well as agreements in distribution contracts on absolute territorial tute an unlawful agreement on fixed prices, although public price protection. These types of restrictions (see CartA, article 5(4); VN, recommendations are used widely across the industry. section 10(1)) are unlawful, unless the presumption of an elimination of competition can be rebutted and, if they significantly affect compe- 17 To what extent are buyer market shares relevant when assessing the tition, they can be justified on grounds of economic efficiency. Parties legality of individual restraints? Are the market positions and conduct participating in these two types of restrictions may be sanctioned of other buyers relevant? Is it relevant whether certain types of with fines if the presumption of an elimination cannot be rebutted restriction are widely agreed to by buyers in the market? and, in the practice of the ComCo (which has not been confirmed by the courts) if the presumption of an elimination of competition A buyer market share of 30 per cent was newly introduced in the can be rebutted, but the vertical restriction significantly affects com- Verticals Notice in 2010 (under the previous notice of 2 July 2007, petition and cannot be justified on grounds of economic efficiency. only the supplier’s market share was taken into account). A buyer Other vertical agreements that significantly affect competition in market share of more than 30 per cent means that agreements are the market for certain goods or services are unlawful, unless they can not generally considered to be justified on grounds of economic effi- be justified on grounds of economic efficiency (CartA, article 5(1)). ciency without further investigation, but that a individual assessment Consequently, there is no rule-of-reason analysis to be undertaken but is required (see question 16). The market positions of other buyers is rather an efficiency test. According to CartA, article 5(2), an agree- not relevant as such under the Verticals Notice, but may be taken into ment is deemed to be justified on grounds of economic efficiency if: account in the individual assessment. The conduct of other buyers is • it is necessary in order to reduce production or distribution costs, relevant inasmuch as cumulative effects of agreements on the same improve products or production processes, promote research market are taken into account (VN, section 16(2); see also questions into or dissemination of technical or professional know-how, or 16 and 18). Whether certain types of agreements or restrictions are exploit resources more rationally; and widely agreed to by buyers is not a decisive criterion for assessing • such agreement will not in any way allow the enterprises con- their legality. cerned to eliminate effective competition.

Block exemption and safe harbour The list of criteria for the efficiency test in CartA, article 5(2) is exhaustive. Further justification grounds such as general political 18 Is there a block exemption or safe harbour that provides certainty considerations, cultural aspects or public health cannot be taken to companies as to the legality of vertical restraints under certain into consideration within the framework of article 5(2). According conditions? If so, please explain how this block exemption or safe to CartA, article 8, agreements affecting competition whose unlaw- harbour functions. ful nature has been ascertained by the competent authority may be authorised by the Federal Council at the request of the enterprises The VN is meant to provide certainty to companies, but concentrates concerned if, in exceptional cases, they are necessary in order to safe- rather on the illegality than on the legality of vertical restraints under guard compelling public interests. specific conditions. Like its EU counterpart, the VN contains some The conditions under which vertical agreements affecting com- sort of ‘safe harbour’ provision. However, the term ‘safe harbour’ petition are generally deemed to be justified on grounds of economic is misleading in that the VN expressly states that the benefit of the efficiency may be determined by way of ordinances or communica- ‘safe harbour’ is only granted ‘as a general rule’ rather than without tions (CartA, article 6(1)), for example, for agreements on research exception, thus depriving the ‘safe harbour’ of its primary role of and development or on specialisation. granting certainty to the companies relying on it. Also, the provision is drafted so narrowly as to exclude from its scope the vast majority of vertical agreements that affect competition. 16 To what extent are supplier market shares relevant when assessing Formally, the ‘safe harbour’ works as follows: agreements con- the legality of individual restraints? Are the market positions and taining no blacklisted practices are, generally, considered to be ‘too conduct of other suppliers relevant? Is it relevant whether certain insignificant to affect competition’ (and therefore legal) if the market types of restriction are widely used by suppliers in the market? shares of the parties to the agreement are below 15 per cent (VN, According to the VN, the competition authorities do take market section 13(1)) unless a cumulative effect in the market resulting from shares, market structures and other economic factors into considera- several parallel vertical agreements can be observed, in which case tion. Vertical agreements are normally not problematic if no party these market share thresholds drop to 5 per cent (VN, section 13(2)). to the agreements holds more than 15 per cent market share in one However, if the market share of the supplier as well as the buyer does of the affected markets. This threshold is not applicable to vertical not exceed 30 per cent, as a general rule any vertical agreement is agreements presumed to eliminate effective competition and to cer- deemed to be ‘justified’, namely legal (VN, section 16(2)), provided tain types of agreements enumerated in VN, section 12 (VN, section that it does not contain any blacklisted practices. The latter include, 13(1); see also questions 2, 8 and 18). The threshold is lowered to 5 inter alia, the direct or indirect setting of minimum or fixed prices per cent in case of cumulative foreclosure effects of several parallel for resale, the restriction of active or passive sales to end-users by agreements. The VN further provides that agreements are, as a gen- members of a selective distribution system operating at the retail eral rule, justified on grounds of economic efficiency without further level of trade or non-compete obligations the duration of which is investigation if the market share of each of the parties to the agree- indefinite or exceeds five years (see the list in VN, section 12, includ- ment in the relevant markets is not higher than 30 per cent. Again, ing exceptions). this rule is not applicable to certain types of agreements enumerated VN, section 16 sets out the framework for assessing the justi- in VN, section 12. Further, it is not applicable if the agreement has a fication of a restriction according to CartA, article 5(2). This may cumulative effect together with other agreements on the same market particularly be the case if an agreement enhances economic efficiency (VN, section 16(2); see also question 18). (for example, through a more efficient system of distribution in terms Whether certain types of agreements or restriction are widely of product upgrading or improvements in manufacturing processes, used by suppliers is not a decisive criterion for assessing their legality. or by lowering distribution costs) and the restriction of competition For example, the ComCo has held public price recommendation for is necessary in order to achieve this goal.

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Types of restraint fixed prices (see questions 16 and 19), the ComCo addressed several potential efficiencies, in particular avoidance of the hold-up problem, 19 How is restricting the buyer’s ability to determine its resale price the free-rider problem and the double marginalisation problem (see assessed under antitrust law? VN, section 16(4)(c), (d) and (e)). None of these efficiencies was recognised in the decision in question. Restricting the buyer’s ability to determine its resale price by fixed or In its decision regarding an agreement on resale price main- minimum prices is presumed to eliminate effective competition under tenance for gardening scissors (see question 20), the ComCo very Swiss antitrust law and is unlawful and can be sanctioned by impos- briefly considered market entry with new products and avoidance ing a fine in case of a first time infringement, unless the presumption of free-riding as potential efficiencies (predecessor provisions of VN, can be rebutted (see question 15). In return, imposing a maximum section 16(4)(a) and (d)), but recognised neither of these efficiencies sale price or recommending a sale price by the supplier will gener- in the decision in question. ally be permissible, provided that they do not amount to a fixed or minimum sale price as a result of pressure of, or incentives offered by, any of the parties. However, the ComCo held public price recom- 23 How is restricting the territory into which a buyer may resell contract mendations for specific non-reimbursable pharmaceutical products products assessed? In what circumstances may a supplier require a to be unlawful, although no pressure or incentives were established buyer of its products not to resell the products in certain territories? (decision currently under appeal). The ComCo assessed public price A supplier may restrict active sales by the buyer of its products into recommendations in two subsequent preliminary investigations in the exclusive territory reserved to the supplier or granted by the sup- the area of electrical tools and hearing aids, making reference to its plier to another buyer, provided that passive sales are still possible decision on non-reimbursable pharmaceutical products. While the without restriction (VN, section 12(2)(b)(i)) (ie, provided that the electrical tools case has been concluded without a finding of illegal supplier or buyer remains able to fulfil unsolicited orders from indi- conduct, the hearing aids case is still pending. vidual customers and that distribution through the customers of the buyer is likewise not restricted). 20 Have the authorities considered in their decisions or guidelines resale price maintenance restrictions that apply for a limited period to the 24 Explain how restricting the customers to whom a buyer may resell launch of a new product or brand, or to a specific promotion or sales contract products is assessed. In what circumstances may a supplier campaign; or specifically to prevent a retailer using a brand as a ‘loss require a buyer not to resell products to certain resellers or end- leader’? consumers? The ComCo has not considered such cases in its published decisions A supplier may restrict active sales by the buyer of its products to a yet. The VN sets out a list of grounds of economic efficiency that may customer group exclusively reserved to the supplier or granted by the in particular be claimed as justification (VN, section 16(4)), which supplier to another buyer, provided that passive sales are still pos- includes protection for a limited duration of investments aimed at sible without restriction (VN, section 12(2)(b)(i)) (ie, provided that opening up new geographical or products markets and ensuring the supplier or buyer remains able to fulfil unsolicited orders from the uniformity and quality of the contractual products (VN, section individual customers and that distribution through the customers of 16(4)(a) and (b)). However, in its decision regarding public price rec- the buyer is likewise not restricted). ommendations for non-reimbursable pharmaceutical products (see questions 16 and 19), the ComCo considered these grounds of economic efficiency not to be relevant in the context of fixing of resale 25 How is restricting the uses to which a buyer puts the contract products prices (by way of public price recommendations). In another decision assessed? regarding an agreement on resale price maintenance for gardening A supplier may restrict the buyer’s ability to sell components supplied scissors, the ComCo held that market entry with new products could for the purposes of incorporation to customers who would use them constitute a ground of economic efficiency pursuant to the predeces- to manufacture rival products, namely the same type of products as sor provision of VN, section 16(4)(a), which was not applicable in those produced by the supplier (VN, section 12(2)(b)(iv)). the case at hand, however.

26 How is restricting the buyer’s ability to generate or effect sales via the 21 Have decisions or guidelines relating to resale price maintenance internet assessed? addressed the possible links between such conduct and other forms of restraint? In 2010 the ComCo has released its first decision relating to the restriction of online sales (in the area of white goods) based on the In decisions regarding industry-wide agreements on the prices for definition of ‘passive sales’ in the VN. Internet sales are considered sheet music and on book prices, the ComCo held that a bundle of to be ‘passive sales’, which may not be restricted (see questions 2 and vertical restraints on resale prices would amount to a horizontal 24), except where sales efforts are specifically targeted at customers agreement on prices. In its decision which held the public price rec- outside of an allocated territory (VN, section 3). In its preliminary ommendations for specific non-reimbursable products to constitute investigation, the ComCo has indicated that acts hindering product an agreement on fixed prices (see questions 16 and 19), the ComCo sales through online stores could constitute unlawful anti-competi- also investigated horizontal collusion between the manufacturers of tive agreements and hence be subject to fines. The ComCo pointed these products, but held that such collusion could not be corrobo- out, that according to the VN the dealer must in principle have the rated; potential collusion among the buyers (ie, pharmacies and self- option to use the internet to actively promote sales and for fulfilling dispensing doctors) was not addressed in the decision. online orders of customers. According to the decision, the supplier may further require that the distributor who operates online distri- 22 Have decisions or guidelines relating to resale price maintenance bution have at least one point of sale. It is also legal to require that addressed the efficiencies that can arguably arise out of such the online dealer indicate the identity and the address of this point restrictions? of sale. However, it is unclear based on the published decision if this concludes all legal restrictions for online sales or whether additional In its decision which held the public price recommendations for restrictions could also be legally imposed. specific non-reimbursable products to constitute an agreement on

264 Getting the Deal Through – Vertical Agreements 2012 Homburger Switzerland

27 Have decisions or guidelines on vertical restraints distinguished in any VN does not specifically address the problem, apart from the general way between different types of internet sales channel? statement that internet sales are considered to be passive sales, except where sales efforts are specifically targeted to customers outside of an There is no guidance yet with respect to distinguishing between allocated territory (VN, section 3; see question 26). different types of internet sales channels. An ongoing investigation regarding the online shops in the area of white goods might lead to such guidance (see question 26). 31 Has the authority taken any decisions in relation to actions by suppliers to enforce the terms of selective distribution agreements where such actions are aimed at preventing sales by unauthorised 28 Briefly explain how agreements establishing ‘selective’ distribution buyers or sales by authorised buyers in an unauthorised manner? systems are assessed. Must the criteria for selection be published? No such decisions have been published by the ComCo so far. Restrictions on multi-brand distribution targeting brands of particular competing suppliers are deemed significant restrictions of competition (VN, section 12(2)(h)). Further, restrictions on cross-supply 32 Does the relevant authority take into account the possible cumulative between authorised dealers within a selective distribution system, restrictive effects of multiple selective distribution systems operating also when dealers at different levels of the market are involved, are in the same market? deemed significant restrictions of competition (VN, section 12(2) Yes, cumulative effects are taken into account. If several similar par- (d)). Similarly, the restriction of active or passive sales to end-users allel distribution systems cover more than 30 per cent of the market, by members of a selective distribution system operating at the retail the market share threshold for significant restrictions of competition level of trade is also regarded as a significant restriction of competi- is lowered from 15 per cent to 5 per cent (see question 16). tion (VN, section 12(2)(c)). But authorised dealers within a selective distribution system may be restricted in their freedom to resell the relevant goods or services to unauthorised dealers (VN, section 12(2) 33 Has the authority taken decisions dealing with the possible links (b)(iii)). There is no explicit requirement that the criteria for selec- between selective distribution systems and resale price maintenance tion must be published or that their application in a specific case policies? If so, what are the key principles in such decisions? can be challenged. This may, however, be helpful in showing that The ComCo has so far not published any decisions relating to resale one of the criteria for a qualitative selective distribution system is price maintenance policies in selective distribution systems. However, fulfilled, namely the choice of resellers based on objective criteria of the general presumption that agreements on minimum or fixed prices a qualitative nature that are laid down uniformly and applied in a eliminate effective competition and are unlawful (CartA, article 5(4) non-discriminatory manner (see question 29). and (VN, section 10(1)(a)) is applicable to selective distribution systems as well. This includes agreements on minimum or fixed prices 29 Are selective distribution systems more likely to be lawful where they that are ‘disguised’ as price recommendations. relate to certain types of product? If so, which types of product and why? 34 Has the authority taken decisions (or is there guidance) concerning The VN stipulates three general conditions for the admissibility of distribution arrangements that combine selective distribution with qualitative selective distribution systems (VN, section 14): restrictions on the territory into which approved buyers may resell the • the nature of the product must necessitate a selective distribution contract products? to preserve its quality and ensure its proper use; The ComCo has so far not published any decisions concerning distri- • resellers must be chosen on the basis of objective criteria of a bution arrangements that combine selective distribution with restric- qualitative nature that are laid down uniformly and applied in a tions on the territory into which approved buyers may resell the non-discriminatory manner; and contract products. However, the general presumption that agreements • these criteria must not go beyond what is necessary. on minimum or fixed prices eliminate effective competition and are unlawful (CartA, article 5(4) and VN, section 10(1)(a)) also applies to A selective distribution system that fulfils these conditions does not, in selective distribution systems. This includes agreements on minimum principle, significantly restrict competition and is permissible. This is, or fixed prices that are ‘disguised’ as price recommendations. however, subject to the provisos of VN, section 12 (see question 28). Special rules are applicable to the motor vehicle trade (see Notice regarding the Competition Law Treatment of Vertical Agreements in 35 How is restricting the buyer’s ability to obtain the supplier’s products the Motor Vehicle Trade, question 7). from alternative sources assessed? Any direct or indirect obligation of a buyer to purchase from the 30 In selective distribution systems, what kinds of restrictions on supplier or from another company designated by the supplier more internet sales by approved distributors are permitted and in what than 80 per cent of the buyer’s total purchases of the contract goods circumstances? To what extent must internet sales criteria mirror or services and their substitutes on the relevant market are regarded offline sales criteria? as non-compete obligations (VN, section 6). Such non-compete obligations that are agreed to for more than five years (which includes Restrictions of active or passive sales by retailers who are members of agreements concluded for an indefinite period of time or containing a selective distribution system to end-consumers are regarded as sig- a ‘rollover’ mechanism for automatic renewal) or for more than one nificant restrictions of competition (VN, section 12(2)(c)). Likewise, year after termination of the vertical agreement are generally deemed the restriction of cross-supply between authorised dealers is deemed to be significant restrictions of competition. to be a significant restriction of competition (VN, section 12(2)(d)). Both need to be justified on grounds of economic efficiency. Qualita- tive standards for selling via the internet should be admissible if they 36 How is restricting the buyer’s ability to sell non-competing products do not go beyond what is necessary. Further, restrictions should be that the supplier deems ‘inappropriate’ assessed? allowed that are directed at preventing authorised dealers from resell- Restrictions on a buyer’s ability to sell non-competing products do ing to unauthorised dealers. However, up to now there has not been not constitute a significant restriction of competition by their object any decision regarding the restriction to sell via the internet, and the under the VN (VG, section 12 e contrario) and must be assessed on a www.gettingthedealthrough.com 265 Switzerland Homburger case-by-case basis. In a qualitative selective distribution system, such 42 Explain how a buyer’s warranting to the supplier that it will purchase restrictions must not go beyond what is necessary (see question 29). the contract products on terms applied to the buyer’s most-favoured supplier or that it will not purchase the contract products on more favourable terms from other suppliers is assessed. 37 Explain how restricting the buyer’s ability to stock products competing with those supplied by the supplier under the agreement is assessed. There are neither special provisions nor precedents regarding the assessment of such clauses under Swiss antitrust law. It is likely that Restrictions of the members of a selective distribution system not to sell the authorities will follow the assessment under EU competition law. different brands are possible, as long as the restriction is not targeted at the brands of particular competing suppliers (VN, section 12(2)(h)). In case of non-selective distribution agreements, restricting the buyer’s Notifying agreements ability to stock competing products is admissible subject to certain limitations regarding non-compete obligations (see question 35). 43 Outline any formal procedure for notifying agreements containing vertical restraints to the authority responsible for antitrust enforcement. 38 How is requiring the buyer to purchase from the supplier a certain amount or minimum percentage of the contract products or a full Agreements (whether vertical or horizontal) can be notified to the range of the supplier’s products assessed? ComCo before the respective restriction of competition takes effect (CartA, article 49a(3)). Such a notification seems advisable if the An obligation of the buyer to purchase from the supplier more than agreements in question entail a considerable investment, for example, 80 per cent of its requirements of the contract products, based on the the introduction of a new distribution system. value of its total purchases in the previous calendar year, is regarded By notification of vertical restrictions of competition prior to as a non-compete provision (see question 35). There is no specific their taking effect, the notifying company does not run the risk of provision on requiring a buyer to purchase a full range of the sup- getting fined pending a reaction of the ComCo to the notification plier’s products, which must be assessed on a case-by-case basis. In a (see CartA, article 49a(3)(a)). If the ComCo does not respond within qualitative selective distribution system, such a restriction must not five months of the notification, the notifying company may not be go beyond what is necessary (see question 29). fined for the notified restrictions of competition (which may theoreti- cally still be held to be unlawful at a later state). Conversely, if the 39 Explain how restricting the supplier’s ability to supply to other company is informed by the ComCo of the opening of a procedure resellers, or sell directly to consumers, is assessed. under CartA, articles 26 to 30 within those five months, and if it then continues the restriction of competition, a fine can be imposed for the If neither the supplier’s nor the buyer’s market share exceeds 30 per future. In general, no reasoned decision will be published at the end cent on the relevant market, the buyer may restrict the supplier not of the formal notification procedure if no procedure under CartA, to supply the contract products to other buyers (exclusive supply articles 26 to 30 is opened. However, there might be a press release obligation). Beyond the 30 per cent market share threshold, an indi- of the competition authorities. vidual assessment has to be undertaken whether or not the restriction can be justified on economic efficiency grounds (VN, section 15(3)). Members of a selective distribution system must not be restricted Authority guidance from actively or passively selling to consumers (VN, section 12(2) (c)). Suppliers must not be restricted either from selling components 44 If there is no formal procedure for notification, is it possible to obtain or spare parts to final consumers or repair workshops (VN, section guidance from the authority responsible for antitrust enforcement 12(2)(e)). or a declaratory judgment from a court as to the assessment of a particular agreement in certain circumstances?

40 To what extent are franchise agreements incorporating licences of Besides the notification possibility and the ensuing opposition pro- IPRs relating to trademarks or signs and know-how for the use and ceedings (see question 43), companies may seek guidance from distribution of products assessed differently from ‘simple’ distribution the Secretariat. According to CartA, article 23(2), the duties of agreements? the Secretariat include advising companies on matters relating to the application of the law. However, officials of the Secretariat There are no special provisions for franchise agreements. In a deci- have indicated in public speeches that the Secretariat is reluctant sion regarding the prohibition of parallel imports of toothpaste, the to further provide guidance, allegedly due to shortage of staff. In ComCo held that the presumption of an elimination of effective com- addition, guidance by the Secretariat will not always result in a petition by an agreement on absolute territorial protection applies clear answer, and it does not bind the ComCo and hence does not not only in distribution agreements (as the wording of CartA, article eliminate the risk of a fine. 5(4) would seem to imply), but also if such a clause is contained in a licence agreement. It is therefore possible that the ComCo would apply this provision to a franchise agreement. Complaints procedure for private parties

45 Is there a procedure whereby private parties can complain to the 41 Explain how a supplier’s warranting to the buyer that it will supply the authority responsible for antitrust enforcement about alleged unlawful contract products on the terms applied to the supplier’s most-favoured vertical restraints? customer or that it will not supply the contract products on more favourable terms to other buyers is assessed. Private parties can explicitly complain to the ComCo. According to CartA, article 26(1), the Secretariat may conduct preliminary There are neither special provisions nor precedents regarding the investigations at the request of enterprises concerned. If there are assessment of most-favoured-customer clauses under Swiss antitrust signs of an unlawful restraint of competition, the Secretariat will law. It is likely that the authorities will follow the assessment under open an investigation with the consent of a member of the ComCo’s EU competition law. presiding body (CartA, article 27(1)). In return, if there are no such signs, the Secretariat will close the preliminary investigation without any further consequence. The approximate time period for such a

266 Getting the Deal Through – Vertical Agreements 2012 Homburger Switzerland

Update and trends

Currently, the ACart is under review. In early 2009, a special an introduction of criminal sanctions against individuals should they evaluation task force issued an evaluation report on its efficiency; have taken active part in horizontal cartel agreements. Accordingly, on the basis thereof, the Federal Council published a draft bill for an the government published a respective draft bill in March 2011 amendment to the ACart in June 2010 and submitted this draft for for public consultation. In September 2011, the Federal Council public consultation. The draft proposed several fundamental changes, published a further draft bill for an amendment of article 5 ACart, such as a creation of an independent Federal Competition Court, proposing, among other amendments, a partial prohibition of vertical differentiated treatment of vertical agreements, improvement of the and horizontal hard-core restrictions combined with a justification objection procedure, modernisation of the control of concentrations, possibility. improvements regarding the possibility of international cooperation After three public consultations, the Federal Council recently and strengthening of private enforcement (without introducing any commissioned the Federal Department of Economic Affairs to draft a kind of class action). In September 2010, the Swiss parliament legislative message to be submitted to parliament in early 2012. At instructed the government to prepare an amendment to the this point, it is not easy to predict by when and with which scope an ACart with respect to (1) possible reduction of sanctions against amendment of the ACart will enter into force. undertakings that have implemented compliance programmes and (2)

preliminary investigation may be considerable and extend over a 48 May the authority responsible for antitrust enforcement directly couple of years. impose penalties or must it petition another entity? What sanctions If alleged vertical restraints solely have effects on the relationship and remedies can the authorities impose? What notable sanctions between private undertakings, do not have a significant impact on or remedies have been imposed? Can any trends be identified in this the market and thereby do not involve public interests, the Secretariat regard? may refer the complaining party to the way of private enforcement The ComCo is empowered to impose penalties itself (CartA, arti- before a civil court (see question 50). cles 18(3) and 53). The Secretariat, in return, conducts the investigations and makes proposals to the ComCo (CartA, article 23(1)). The Enforcement ComCo may impose a fine of up to 10 per cent of the respective companies’ turnover in Switzerland in the previous three business years. 46 How frequently is antitrust law applied to vertical restraints by the The amount of the sanction is dependent on the duration and severity authority responsible for antitrust enforcement? What are the main of the unlawful behaviour. A remedy may consist in reaching an ami- enforcement priorities regarding vertical restraints? cable settlement, which will be decided by the ComCo on a proposal from the Secretariat (CartA, article 30(1)). As far as remedies are Swiss antitrust law is often applied to vertical restraints, as Swiss concerned, the authorities are particularly interested in removing any authorities are particularly concerned about the allegedly higher obstacles to parallel imports and in scrutinising price recommenda- prices in Switzerland compared to neighbouring countries. However, tions having – allegedly – the effect of fixed prices. The VN explicitly the number of decisions does not match the number of (preliminary) treats price recommendations with suspicion from the outset. investigations the Secretariat conducts. In 2002, the Swiss authorities In 2009, the ComCo issued the first three decisions in which fines reported some 120 cases regarding vertical agreements. Based on 76 were imposed in cases of vertical restraints: cases that had been closed by the time the annual report for 2003 • fines of 55,000 Swiss francs in total were imposed for an agree- was published, not one unlawful vertical agreement had been found. ment on resale price maintenance with respect to gardening scis- Either the CartA was not applicable, or there were no competition sors (this decision was based on a leniency application and an problems, or, in some cases, there was an amicable settlement. From amicable settlement and was thus not appealed); 2004 to 2010, the Swiss authorities conducted 71, 90, 80, 46, 39, 39 • fines of 5.7 million Swiss francs in total were imposed for pub- and 42 (preliminary) investigations in a given year. The figures for lic price recommendations regarding specific non-reimbursable 2011 have not yet been published. Based on the published statistics, pharmaceutical products (this decision was appealed to the one cannot allocate these cases to specific types of restraints, but a Federal Administrative Court); and considerable share have concerned vertical restraints. In 2009, the • fines of 4.81 million Swiss francs were imposed for an agree- ComCo issued the first three decisions in which fines were imposed ment prohibiting parallel imports of toothpaste (this decision in cases of vertical restraint. The ComCo issued no decision in this was appealed to the Federal Administrative Court). area in 2010 and one decision in 2011 (see question 48). In 2010, the ComCo issued no decision in which a fine was imposed 47 What are the consequences of an infringement of antitrust law for the in cases of vertical restraints. In 2011, the ComCo issued one decision validity or enforceability of a contract containing prohibited vertical in which a fine was imposed in cases of vertical restraints, where fines restraints? of 12.5 million Swiss francs in total were imposed for an agreement prohibiting parallel imports in the area of photographic cameras (this A contract containing prohibited vertical restraints (a restriction decision was appealed to the Federal Administrative Court). eliminating effective competition or a restriction substantially affect- Further investigations were opened in the area of vertical ing competition that cannot be justified) is null and void based on restraints, which may eventually result in fines; specifically, with Swiss civil law (Code of Obligations, article 20(1)). According to the respect to the alleged obstruction of parallel imports of cars, with principle of severability (which is set forth in the Code of Obliga- respect to the alleged obstruction of parallel imports and alleged tions, article 20(2)), if the defect only affects particular parts of the resale price maintenance in the area of mountain sports products, contract, then only those parts shall be null and void, unless it is to be with respect to the alleged obstruction of parallel imports of certain presumed that the contract would not have been concluded without sound recording media (eg, CD) and with respect to agreements on the defective parts. price and allocate markets geographically in the area of plumbing and bath equipment.

www.gettingthedealthrough.com 267 Switzerland Homburger

Investigative powers of the authority restraint of competition from entering or competing in a market. Such a person may request removal or cessation of the obstacle 49 What investigative powers does the authority responsible for antitrust (eg, conclusion of contracts at market terms), damages and repara- enforcement have when enforcing the prohibition of vertical restraints? tions, and the remittance of illicitly earned profits (CartA, articles 12(1), 13). Up to now, private enforcement has not been used very Parties to vertical agreements are required to provide the competi- frequently. This is mainly due to the high burden of proof and the tion authorities with all relevant information and to produce all substantial cost risk, since court costs and the other party’s legal necessary documents (CartA, article 40). The competition authori- costs must usually be borne by the losing party in the proceedings. ties may also hear third parties as witnesses and require the parties In a 2008 report on the evaluation of the effectiveness of the CartA, to the investigation to make statements (CartA, article 42(1)). The measures for strengthening private enforcement were recommended. competition authorities may order searches and seize documents In a consultation proposal published in 2010 for an amendment of (hard-copy and digital) (CartA, article 42(2)). In this context all doc- the CartA (see Update and trends), the Swiss government has sug- uments and electronic databases located at the undertaking’s prem- gested implementing only one of these proposals, with respect to the ises as well as at the houses of managers can be searched and seized, statute of limitations. including documents that might be protected by legal privilege in other jurisdictions, with the exception of ‘defence correspondence’ – correspondence with an external lawyer related to an ongoing Other issues investigation. The competition authorities also demand information from suppliers domiciled outside of Switzerland. Owing to a lack 51 Is there any unique point relating to the assessment of vertical of international treaties in the area of competition law (with the restraints in your jurisdiction that is not covered above? notable exception of the area of civil aviation, where a bilateral It is the stated aim of the ComCo to bring Swiss provisions on com- agreement between Switzerland and the European Union exists), petition law in line with the EU competition provisions in the area such requests may not be enforceable, however. of vertical restraints (VN, recital VI), Important adaptations and an approximation to the legal situation in the EU Union are made in the Private enforcement new Verticals Notice for the assessment of price recommendations (VN, section 15) as well as with respect to the importance of inter- 50 To what extent is private enforcement possible? Can non-parties brand competition (VN, section 11). In addition, the introduction of to agreements containing vertical restraints obtain declaratory the additional (buyer) market share threshold in EU competition law judgments or injunctions and bring damages claims? Can the parties has also been reflected in Swiss law. However, actual harmonisation to agreements themselves bring damages claims? What remedies are with EU competition law has not yet been fully achieved. available? How long should a company expect a private enforcement action to take? Private enforcement is possible under Swiss antitrust law. The right to sue, however, is limited to a person impeded by an unlawful

Franz Hoffet [email protected] Marcel Dietrich [email protected] Gerald Brei [email protected] Andrea Eugster [email protected]

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